Abstract

This research focuses on financial constraints faced by firms in Latin America and the Caribbean and their financing patterns. Unique firm level survey data from World Bank Enterprise Survey (WBES) is leveraged for this study. The sample used in this research consists of over 22,000 firms from 31 Latin American and Caribbean (LAC) countries for the period between 2006 and 2010. ^ First, this author empirically estimates the effect of financial constraints on a firm's export behavior in terms of probability to export and export intensity. The analysis shows that older, larger firms with a share of foreign ownership, and those having a line of credit and an overdraft facility are more likely to export than smaller, younger, domestically-owned firms that are financially constrained. However, exporting firms feel as if they are more financially constrained. But younger, larger firms with a share of foreign ownership and those having no line of credit or overdraft facility are found to export more of their products and services than their older competitors that have access to a line of credit or an overdraft facility. ^ Secondly, this research evaluates the effect of different financing patterns on a firm's probability to export and the export intensity. After controlling for individuality of national economies and firm-level variables that may affect probability of export participation, this research shows that firms have a higher likelihood to participate in exporting activity if they use a larger (smaller) share of formal bank financing (internal financing) to fund their working capital. Also informal financing is found to have a significantly positive effect on export participation. ^ Additional findings indicate that increase in export intensity is associated with an increase in bank financing and decrease in a share of supplier credit and/or customer advances. And post-delivery payment is associated with an increase in likelihood to export but a decrease in export amount; while payment before delivery has a significantly positive effect on export intensity. ^ Finally, this research analyzes differences in financing patterns between female and male entrepreneurs and if they face different financial constraints. Results show that male and female business owners have similar perceptions concerning financial constraints faced by their respective firms. However, female business owners are more likely than male business owners to have lines of credit at financial institution. Although female entrepreneurs are also more likely to apply for loans, the average size of the loans they receive is significantly smaller than that for men. Furthermore, female entrepreneurs finance a smaller portion of their working capital using bank loans or financial institutions. ^ Based on this author's research of the topic, this study appears to provide the first concrete evidence in a cross-section, cross-country setting that financially constrained firms are less likely to export and it is the first paper in the existing literature to examine the effects on financing patterns on export. Moreover, this study seems to be the first to test gender differences in terms of the number of sources of financing and different financial constraints.^